Weekly Market Report – 10th April 2016

Not a great week for the arabica market which has been pressurised by falling exchange rates in many origins, most notably Brazil but also by a higher than anticipated forecast of the upcoming crop in Brazil by IBGE. Arabica coffee prices lost 6.8 cents/lb over the week. Robusta prices, however, did not follow arabica down and have been supported by concerns over the damage caused to the Conillon crop by the extended dry period in these regions as well as concerns over the size of any carryover stocks in Vietnam. As a result robusta prices gained $24/ton (1.1 cents/lb) over the week. This means that road side parchment prices in Papua New Guinea will probably be around 40 to 45 toea/kg lower in the week to come.
There is no doubt that currency values played a large part in this week’s prices movements The Brazilian Real led losses in Latin American currencies after reports that President Rousseff vowed she would never resign from office. The Colombian Peso also fell significantly which pushed coffee prices even lower. The latest survey from the Brazilian Institute of Geography and Statistics (IBGE) estimates that the 2016/17 coffee crop will total 50.2 million bags, up 0.9% from the 49.7 million bag estimate last month. Arabica production is estimated to rise 0.7%, to total 39.2 million bags, while robusta production is estimated to increase by 1.8% to reach 11 million bags. However this does seem rather optimistic as the state of Rondônia, the second largest producer of robusta coffee in Brazil, has now started harvesting the 2016/17 crop and early reports suggest that the low volume of rains during the crop cycle have affected productivity, with producers estimating that it will take 10 to 15% more cherries to fill up a coffee bag. Rains have picked up for Colombia’s coffee growing regions this week, with widespread showers forecast for the next two weeks. However the weather conditions brought on by El Niño phenomenon have certainly had an adverse impact on all Colombian coffee growing regions. A recent study found that the national average of floating fruits due to dry weather currently stands at 19.4% (the normal percentage is under 10%). The amount of green fruits with filling or formation problems is at an average of 33.3% (the normal average is no higher than 10%). And lastly that 16.5% of the coffee trees in Colombia are showing symptoms of withering (this percentage is said to be critical when it is greater than or equal to 8%).
Traders report that activity in the physical market continued to be sluggish this week, with very little interest in any coffee except in some Centrals and any coffee available for immediate delivery. With a lower futures market, price differentials are hardening a bit. Brazilian 3/ 4’s are up a cent at minus 19; Honduras HG’s are higher at plus 2/4; Kenya FAQ’s remain virtually unchanged at plus 85/97; Colombian UGQ’s are slightly higher at plus 14/15; while PNG Y1’s continue to be quoted at minus 1. 
Speculators appear to have reduced their exposure to coffee and in part this may have been behind the larger than anticipated fall in arabica coffee prices this week, but the continuing stream of increased estimates of the upcoming crop in Brazil are not particularly helpful. Unusually the weather in Brazil looks as though it will be hot and dry this week when it should be colder and wet, but at this stage in the season it can only really help the crop, which is not good. Offsetting this to a limited extent are the concerns about dry weather in Vietnam, but the outlook remains precarious and further price erosion looks likely.